Central banks could be preparing for a new monetary regime where gold plays an essential role, according to Goehring and Rozencwajg.
Right now, the US dollar is at risk of losing its reserve currency status which could create the most impactful shock to the stock market in the past forty years, Leigh Goehring explained.
In recent months, emerging economies like China, India, Turkey, Egypt, Qatar, and Singapore have been increasing their gold reserves, creating a massive drive and demand. After making record-breaking purchases in 2022 for 1,136 tonnes of gold, central banks added another 228 tonnes to global gold holdings during the first quarter of this year.
This robust gold buying has been sustaining gold and keeping it above the $1,900 per ounce level in the face of a hawkish Federal Reserve.
But it isnt just the last two years that the central banks have been driving gold demand, they have been the driving force for the last decade which could be related to the projected monetary regime shift.
For years, there has been speculation that the US dollar is losing its standing as a reserve currency, but growing evidence that countries are abandoning the dollar suggests that time may be coming sooner rather than later.
Saudi Arabia is discussing paying for its oil in renminbi, all sanctioned Russian oil sales being paid in renminbi, Brazil wanting to settle its agricultural trade with China in renminbi, and France's TotalEnergies willing to sell LNG to China and accept renminbi.
Of course, these initiatives arent considered monetary regime change because China has a closed capital account and countries trading in renminbi cannot exchange it, which is where gold comes in.
This could explain why so many central banks are buying gold. China has taken a serious approach to building its gold reserves. Since November, China has purchased 144 tonnes of gold, bringing the central bank's total stocks to around 2,092 tonnes.
Goehring & Rozencwajg expect gold to break through $2,100 before the end of the year, which will benefit gold producers like Luca Mining (TSXV:LUCA) (OTCQX:LUCMF), a Canadian based publicly traded mining company operating in Mexico.
Luca Mining has two high-quality Mexican gold, silver, and base metal mining assets with a total resource of 2.2 million gold equivalent ounces (M&I). The Tahuehueto Gold Mine, which is on track to deliver initial production by June 30, 2023, and the Campo Morado mine, which has a compliant 16.6 million tonne Measured & Indicated (M&I) resource grading 4.01% zinc, 0.80% copper, 0.93% lead, 123 g/t silver, and 1.70 g/t gold.
On June 28, Luca Mining announced that its Tahuehueto Gold project has achieved production capacity of 500 tonnes per day (tpd) on time and on budget, making the mine profitable at current metal prices. This major milestone allows the company to move toward 1,000 tpd production capacity at Tahuehueto which is expected to be completed by the end of 2023.
The final stage of 1,000 tpd production offers a net present value (NPV) of US$131.8 million, an IRR or 65% and an average all-in-sustaining cost (AISC) of US$855 per ounce gold equivalent over the 10 year mine life.
Recent production grades have averaged 2.47 grams per tonne (g/t) gold (Au), 31.2 g/t silver (Ag), 1.23% lead (Pb), and 2.92% zinc (Zn). The lead concentrate achieved an average content of 51.2 g/t Au and 648.5 g/t Ag and the zinc concentrate achieved an average content of 45.2 % Zn, all of which was within 5% of the plan.
Luca Mining also announced the closing of an oversubscribed private placement for total proceeds of C$24.9 million.
Earlier this month, the company also shared an update on metallurgical test work to improve precious metal recoveries at its Campo Morado Mine in Guerrero, Mexico.
Pilot-scale testing of Jameson Cell technology at Campo Morado at micro-fine grind levels demonstrates the ability to significantly improve recoveries and concentrate grades in both the copper and lead streams, as well as moderate improvements in the zinc stream and potential cost savings.
Click here for more information about Luca Mining (TSXV:LUCA) (OTCQX:LUCMF).
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